IRS Expands Determination Letter Opportunities for Retirement Plans

Legal Alert

May 1, 2019

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On May 1, 2019, the IRS announced that it is expanding its determination letter program in two important regards. Since 2017, the determination letter program has been available only for new or terminating individually designed plans. Beginning on September 1, 2019, the determination letter program will be expanded to include (1) retirement plans that merge as the result of a corporate transaction, and (2) certain defined benefit plans.

If a plan merger occurs in connection with a corporate merger, acquisition or similar transaction, the merged plan can be filed for a new determination letter in many cases. To be eligible for a new determination letter, the plan merger must occur by the end of the first plan year that begins after the corporate transaction, and the determination letter application must be filed by the end of the first plan year that begins after the plan merger.

For example, if the corporate transaction occurs in 2019, the plan merger must occur by December 31, 2020 (assuming a calendar year plan), and the determination letter application must be filed by December 31, 2021.

In addition, all “statutory hybrid plans” (mostly commonly cash balance defined benefit plans) can be filed for new determination letters during a limited window between September 1, 2019, and August 31, 2020.

A new element of the determination letter program is the possibility of fines being imposed if the IRS identifies certain errors in the plan document. However, these fines are capped at twice the applicable VCP fee. Under the current VCP fee schedule, these fines would not exceed $7,000.

If you have questions about these new determination letter opportunities, please contact your Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell, LLP.